SOVEREIGN INDIVIDUALS & CURRENCY CONTROLS

For some, it’s a daunting challenge to find individual sovereignty and maintain financial independence as governments desperately look to empty your pockets for more taxes, regulate your life, and restrict the free movement of you and your money. Central planning and government controls appear almost everywhere.

At one time asset protection meant protecting assets from frivolous lawsuits. Today, many fear their own government even more.

And for those who fear currency controls, fear no more. Currency controls are now a reality.

But for many, the dream of freedom from government burdens, and personal independence and privacy, is a living reality, free of unwanted intrusions.

Today’s newsletter offers some reassuring thoughts of how to find independence and personal sovereignty in our dynamic world. Where to find some stability may surprise you.

Currency Controls

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The Sovereign Individual

No doubt, America and other Western countries have many long term economic, social and political issues.

But one of the most troubling on the long list is the growing problem of currency controls against honest individuals conducting legitimate offshore business and banking. We have long argued that the noose was tightening against the free movement of money, not just at home, but globally.

While there is no one specific law restricting the free movement of currency across U.S. borders, America and other nations have “de facto” currency controls.

You read the above correctly: today, the USA has de facto currency controls restricting Americans from conducting legitimate global business across their borders. And Americans are not alone as other nations are taking notice and waiving the same warning flag.

For those with a little knowledge of history, they know that currency controls occurred in the 1930s in Germany, in 2003 in South Africa, currently exists today in China, and in thirteen other countries around the world.

In America, currency controls began with the 1970 Bank Secrecy Act. Then came the Patriots Act and other federal banking laws that created stringent bank reporting requirements against customer activities (SARs). Then things got really ugly in 2010 when FATCA (Foreign Account Tax Compliance ACT) - and other ancillary laws that followed - mandated that foreign countries enforce the U.S. laws of U.S. individuals investing, retiring, or living outside the U.S.

It may shock you to know the number of times in just one year that your local bank reports their customers to the IRS…..it’s very significant.

Annually, there are more than 20,000,000 IRS filings reported: over 18,000,000 Currency Transaction Reports, 2,000,000 Suspicious Activity Reports (SARs), 700,000 by money service businesses (SARM), 250,000 by businesses (Form 8300) and 14,000 by casinos (SARC), plus a smaller number of numerous other reports.

On average, every single banking day, over 55,000 suspicious activity reports and currency transactions are filed by money service businesses in America against Americans….55,000 each and every day. Have we all become money launderers and terrorists?

What’s worse, a bank employee is prohibited from disclosing to the customer that a report was filed with the IRS. Violations of the non-disclosure reporting requirement may lead to civil and criminal penalties, including fines as great as $250,000, and five years imprisonment. This means it is illegal for a bank employee to let you know that even your honest, legitimate banking activity might lead to a Suspicious Activity Report filed with the IRS.

Already under specific existing tax laws, investing in foreign mutual funds creates a tax trap that can well exceed the dividends (as PFICs). And by IRS rules and regulations, the compliance burdens when investing offshore, or owning property or a business entity offshore, can be stifling for those uninformed.

The early laws were designed to hinder money launderers - and later, terrorism - but ultimately acted as a disincentive to law-abiding citizens looking to legitimately invest offshore. But the primary uses are to monitor and control your money. Today, most of the civilized world has been forced to follow the U.S. super-jurisdictional laws, even though these foreign nations are sovereign countries.

Furthermore, in the US, the Federal Treasury already requires reporting of foreign bank accounts - the FBAR, now known as FinCen Form 114 - which is burdensome enough. Under a separate law U.S. citizens are also required to report annually all types of foreign owned assets above $50,000 on their personal tax returns with Form 8938.

And it gets much worse.

Since 2010, the IRS acquired indirect and discretionary control over offshore banks under the HIRE Act, which integrates the provisions of FATCA. These far reaching burdens have all but cut off offshore banking and investment opportunities for many Americans.

Read that last sentence again….it is very significant.

The newly adopted financial and compliance burdens and expenses impacting foreign banks dealing with Americans are very dramatic and so great, that many U.S. citizens have been cut off from financial markets outside the U.S. boundaries.

From a global perspective, for Congress to attempt to regulate foreign banks of sovereign jurisdictions is seen as arrogant, and distasteful to many around the world.

But worse yet for Americans, the spillover to non-financial investments follows, since investing in real estate, stocks, bonds, and intangible assets involves U.S. citizens using a foreign bank to complete an offshore transaction, unless traveling with a suitcase full of cash across borders…..but beware that traveling with large amounts of cash creates its own set of problems.

Today, your money is only a signed Executive Order away from absolute prohibition against transferring money outside the U.S., or mandating the repatriation of all offshore assets. Like lemmings, most Americans sit idly by as the U.S. goes off the cliff.

Going forward, only the most determined and forward looking individuals will be able to withdraw their assets from the U.S. system, and protect their property – and themselves - somewhere else.

At a minimum, the above should be strong motivation to take personal action now before the door is closed. Exits get crowded when everyone panics at the same time, and then it’s usually too late. Already a noticeable number of U.S. citizens living overseas are turning in their US passports, but they are forwarding thinking – or fortunate dual citizens by birth - and understand that a second citizenship is necessary before renouncing U.S. citizenship.

But there’s hope……….

The Sovereign Retreat

No doubt, books shape the mind and our perceptions of our world. Those that have read Atlas Shrugged know that free markets and personal freedoms are located in a special place. That special place is free of socialist government, free of government intrusion, and free from increasingly confiscatory taxes.

Atlas Shrugged, written by Ayn Rand in 1957, is the story of an industry leader who organized a global strike with other industry leaders as the world was suffering from an onslaught of socialism. John Galt - our hero - believed that if the business leaders in every field withdrew their participation in the system and physically departed from an increasingly corrupt society, then the system of freeloaders and socialism would collapse in on its self with no one to support it.

Galt eventually persuaded people of talent to withdraw from the system and move to a secret, high tech enclave in a hidden valley called Galt's Gulch. The wealth creators were able to withdraw from socialism, recharge their energies, and reshape their lifestyle to what they once enjoyed, and which they hoped would again become a reality across the world.

The free market principles in Rand’s book has inspired generations of freedom seekers. It deals with timeless issues, and portrays the epic struggle between good and evil, and between individualism and collectivism. Rand re-introduces a fresh philosophy of rational self interest which supports a free market system.

The book's core - free market thinkers vs. socialism - is the constant struggle of the individual against the collective. Throughout history the individual has generally been subservient to the group: the family, the village, the city, or the nation. And this collectivist philosophy is always underpinned by a morality of self-sacrifice preached by all religions and societies, particularly socialism.

The novel is timeless because it deals with issues that are as old as humanity, but very current in today’s evolving environment.

Importantly, the “citizens” of Galt's Gulch were truly sovereign individuals, self-contained and autonomous persons, who were fully responsible for their own actions, and their lives. Literally, self rulers.

Today, is it possible to "leave" a corrupt system, and let it fend for itself?

The answer is surprisingly, yes. Just as in Atlas Shrugged, it's possible to join the ranks of sovereign individuals, and create a Galt's Gulch for yourself.

How?

Individual Sovereignty: Easy Come, Easy Go?

Many believe that a sovereign individual is part of an inherent element of being human. That means when you were born, you were given free will by your creator.

Thereafter, that free will only became limited by the government where you choose to live, and where you consent to be governed. Therefore, you are a sovereign person from day one - the moment you are born - but your freedom is limited by the laws of the country where you continue to live.

I agree …. and there’s more.

As many are painfully aware, America was originally born over two centuries ago to permit every citizen to be a sovereign person to the maximum extent possible. Taking risks - and accepting success or failure as the outcome - was part of the system that made America great. However, that system has been subverted to the point where the U.S. has clearly embarked upon a socialist state and individualism is less welcome.

In one of our past newsletters we discussed Socialism USA Style, and how it arrived. It might surprise you that it has been in the making for decades, right at home, and is not a recent occurrence as many believe.

Moreover, the transition to socialism today is not unique to the U.S., as it permeates throughout the over-burdened Western culture worldwide, drowning in welfare and entitlements. Europe, for one, is only just coming to grips with how excessive government entitlements and aging demographics are unsustainable. Japan, the world's second largest industrialized economy, has already experienced more than two lost decades for the same reasons.

Examples in the U.S. include failed policies of entitlements and welfare, outcome based education (a race to the bottom), wasteful and oversized - and still growing - government programs and spending, nationalization and bailouts of an endless number of private enterprises which were destined to fail, and more.

Today, many households in America are financially stressed. While the “official” U.S. unemployment rate is low, the “true” U.S. unemployment rate continues to hover much higher, which reflects workers that have dropped out of the system, or are under-employed. The true number of under-employed in the U.S. today is much higher than many realize.

Yet the government only responds with more central planning and remedial efforts by raising taxes, over-regulation, and excessive government planning and control, which will only make the problems worse. Meantime, the average annual wage and benefits for US government federal civilian employees average $119,982, while for the private sector only $59,909, according to the CATO Institute Study.

If you think the debt and social problems in little old Greece were bad, the U.S. debt is far worse and approaching an unsustainable 100% of GDP.

Central planning by any other name is socialism. Frederick van Hayek’s book, The Road to Serfdom, first written during the 1930's clearly sets forth the pitfalls that naturally follow socialism. It was these evils that van Hayek demonstrated, which reared their ugly head and brought about the failure and injustices leading up to WW One and WW Two. Ronald Reagan and Margaret Thatcher in the early 1980's openly followed his free market philosophies, as they reopened the doors for a rebirth of free markets and freedoms. But those open doors of globalization are swiftly closing as the U.S. and other nations revert to nationalism and populist pandering.

Where are free market thinkers - and freedom - today?

If Not in America, Then Where?

Our first stop is the 2017 Index of Economic Freedom which ranks 179 countries across the world by economic freedom. This information is reported annually by the Heritage Foundation and the Wall Street Journal, so it is a credible publication.

Again, the top two countries for economic freedom are Hong Kong and Singapore. For what it’s worth, I've spent time in these two over-populated, small countries. Both Hong Kong and Singapore are good places to do business, but are at the whims of the Chinese government.

How ironic that a Chinese Communist variety of capitalism (a more profound level of socialism) is the fastest growing economy in the world, and tops the global list of economic freedom today by influence through these two leaders. Is there a warning to heed in this message? And are these free markets a model for a sovereign individual to embrace?

Rated next on the 2017 Index of Economic Freedom are New Zealand, Switzerland and Australia. It may come as no surprise that both New Zealand and Australia hitched their economies to China, particularly Australia.

Many of our long time readers know that I am a multi-national citizen, and in addition to being a natural born USA citizen, I am also a New Zealand citizen. Our family has spent a considerable amount of time living in both New Zealand and Australia, in addition to the US. It’s a long commute to the office in Vail, CO, but you get used to it after two decades.

New Zealand is a small country of approximately 4 million people. The geography is diverse and breathtaking, and the Kiwis are staunchly independent, and at times stubborn in spite of themselves. The “No Nuke” policy means sea, land and airspace are off limits to American nuclear naval and air ships…period.

The culture is conservative British Provincial, yet live-and-let-live prevails with alternative lifestyles. Its diverse culture is made up of approximately one-third European descent, one-third Asian, and one-third South Pacific Islanders, especially around Auckland.

Importantly, the New Zealand economy is small – very small – and depends on the shifting winds of the global economy and its nearest neighbor Australia. Socialized medicine has been in place for decades, income levels are low by world comparison, and the exchange rate even lower against other global currencies.

New Zealand is a great place, odd quirks and all. For those interested in residency and citizenship with New Zealand, an entire chapter is devoted to the topic in my book Offshore Living and Investing, and in an earlier newsletter you can find here. But at the end of the day mate, New Zealand is not Galt’s Gulch.

And Australia?

Australia at times feels like the 51st U.S. state. It’s very Americanized. During WWII General Douglas MacArthurcame to the rescue of Australia, and Aussies decided they liked Americans better than the Brits who weren’t around when they needed them for military defense. Worthy of note is that his son, Alex Macarthur, now deceased, was a good friend and neighbor of mine.

Australia is enormously rich in natural resources it sells to rapidly developing China. Australia is geographically the size of the U.S., with only the population of 22 million living in a ring alongside the vast stretches of beautiful long, white sandy beaches, and warm, blue oceans.

Around 200 years ago, European convicts were sent by the boat loads to Australia, with a few deranged people in charge. Notwithstanding that the founders of Australia were convicted murders, thieves, cheats, and rapists, today, Aussies are some of the nicest folks around.

To many, this is called the land of "Oz", the "God Zone", the “Lucky Country”, and the "Best bloody place on earth, bar none." The irritating thing is that they may be right.

Australia was the lucky country that avoided a technical recession as the Global Financial Crisis clobbered the world. The government is now run by the Liberal Party, Prime Minister Malcom Turnbull, hell bent on squandering away the country’s future with more regulations and more taxes. Today Turnbull is busy attacking the most productive and profitable sectors of the Australian economy with new taxes. The PM appears to believe that votes are needed to be bought with socialized entitlements, and management of a Nanny State from cradle to grave.

And like New Zealand, Australia is a wonderful place, but it’s no Galt’s Gulch for the sovereign individual.

And Switzerland? This small, independent thinking nation speaks for itself. Unfortunately, it has been under attack by the U.S. government for financial privacy, which has been staunchly defended for over 250 years. But some how the libertarian, freedom seeking Swiss way continues to prevail.

So, if free markets and freedom can’t be found in the top ranked countries for economic freedom, then where the bloody hell can it be found?

Finding Galt's Hidden Valley

A five volume book written by W G Hill during the 1990's comes to mind as a useful beginning in which to find individual sovereignty. The core of Hill’s books is arranging your lifestyle and assets to a “Five Flags” approach.

To summarize, this consists of 1) having citizenship with a country unconcerned about what its citizens do outside its borders, 2) creating revenue in another venue other than where you live, 3) reside in a haven where individuals can be free to be creative, live, relax, and prosper, and with a high level of privacy, 4) maintain assets in still another competent jurisdiction that respects the rights to property, and with competent financial and banking advisors, and 5) having one or more “playgrounds” elsewhere where you can live the good life.

But keeping a low profile doesn’t mean breaking the law or becoming a tax cheat. And it doesn't mean you need all five flags to succeed. It does, however, mean that to maximize the benefits you will need to better position yourself today for the future. For many forward thinking individuals, this is well worth the effort.

Better yet, today you can add to the above the benefits of managing your life and assets through the Internet, regardless of where you reside, where you are traveling, or where your assets are located.

Naturally, you are always subject to the laws and taxes of the country where you reside, transact business, travel, and locate your assets, but you are free to relocate yourself or your assets at will…..on a moment’s notice, if “stuff happens.” And with multiple citizenships you are free to renounce a citizenship if one country places too heavy a burden on its subjects, excuse me, I mean its citizens.

And with proper legal and tax pre-migration planning, there are even better opportunities to keep assets - and the income they generate - outside of burdensome tax regimes. Within any specific country, keeping a low profile is an effective way to have maximum personal freedom.

But beware: there is no one perfect beach, a no-fail, high yield financial advisor, or a perfect lost gulch called Secret Valley. For some, residing in Panama or Costa Rica is heaven, and for others it’s shear Hell. Some investors have found a safe banking haven in Hong Kong, Singapore, or the Caymans, while others have found security with the long established conservative Swiss or Brit Bankers. And a culturally rich and diverse environment for one individual, is culture shock to another.

Where and how you create your hidden valley, is left only to you and your creative mind, operating in a complex world of diverse legal and tax rules where you choose to be governed. Getting lost can be half the fun. But there is something very liberating about being in control.

Finding Your Hidden Valley

Finding your hidden valley is more than just a virtual reality.

It begins in your mind. It’s enhanced by your long term objectives, limited only to your resourcefulness, and knowing what rules to follow. For some, it’s limited by money, but their ingenuity can overcome their financial handicap by selling their time, labor and skills to the highest bidder somewhere else.

And for those with measurable assets, it means planning ahead to avoid financial and tax pitfalls. The traps for some may be protecting assets in a changing world, or for others it’s a concern about the political or social direction of America.

But in any event, freedom for your future begins with the choices you make today.

If you don’t accept being dictated to and taxed to death by those that govern you, then why choose to do nothing? It’s your choice, but only if you take responsibility and control over your life.

Setting up an international trust is an excellent way to get started…but it must be done timely, and correctly.

(Licensed to Practice Law in U.S. States & Federal Courts;
Assoc. Member Auckland, N.Z. District Law Society - Foreign Lawyer; &

Assoc. Member Queensland Law Society, AU - Foreign Lawyer)

The comments herein are not intended to constitute a legal or tax opinion regarding any specific legal or tax issue as additional issues may exist; does not reach a conclusion with respect to any specific legal or tax issue addressed herein or any additional issues not included; and cannot be used for the purpose of avoiding legal or tax obligations or penalties with respect to issues in or outside the scope of matters discussed herein.

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